Thursday, November 15, 2007

Hall of Shame II

By Richard Vedder

I am writing this from a classroom, where I am administering an exam in American Economic History to 46 students of diverse talents (one apparently just won a Marshall Scholarship, one of the most prestigious awards made to undergraduate students). While proctoring the test, I read part of the Higher Education Act reauthorization bill before the U.S. House, namely the parts dealing with shaming colleges which raise fees a lot.

I still like the idea. I would go farther and print the increases in presidential salaries over the last 3 years (including fringes and hidden benefits) along with the large tuition hikes, in order to show that parts of the huge tuition increases are going to line the pockets of institutional leaders.

Yet the bill has a huge number of technical problems, most of them minor, all of them resolvable; and this gets to an essential truth: it is hard to legislate in a way that does not impede on college operations in an overly intrusive way and simultaneously achieve a legitimate policy objective. For example, the definition of "net price" is subject to multiple interpretations. Personally, I would prefer to emphasize sticker prices which are the prices quoted to students before they actually fill out the hated FAFSA form. However, academic units within universities can and do tack on extra fees --how are they to be accounted for? What about schools that raise tuition a little --but room and board charges a lot, requiring students to live in dorms and eat college provided food sold at monopoly prices?(Princeton did that this year).

The bill calls for colleges to provide a lot of good consumer information on an easy to access web site --a great idea in keeping with the spirit if not letter of Spellings Commission recommendations.

I would actually restrict the Hall of Shame more than the House bill does --limit it to the top 10 or at most top 20 percent of schools in each institutional classification, not the top half or so as proposed in the bill. If lots of schools are on the list, targeted institutions feel less conspicuous and less shamed.

One objection to the Hall of Shame is that in some cases poor schools have to increase tuition more than the rich ones. I am dubious of this argument, but Congress could, if it wanted, provide more rigorous standards for endowment-rich schools, say those with endowments exceeding $500,000 per full time equivalent student. Maybe those schools should be on the Hall of Shame list if tuition fees rise more than the CPI plus one percent. My preferred approach would be to phase out tax exemption for schools with both high endowments and high sticker prices. An alternative or additional approach would be to require colleges to spend more out of their endowments, which our friend Lynne Munson has been advocating.

Then there is the brouhaha over accreditation. A last minute revision in the bill allowed accreditors a good deal of power and leeway in the area of performance standards not in the original bill --causing the college reps to be furious. Tough bananas. However, I am not sure I want to turn a lot of power over to the people who have restricted access to higher education and run higher education cartels, but I think performance standards are needed, transparency is required, and, on the whole, the House bill in these areas is moving in the right direction. Stay tuned --I need to tend to my students.